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Wondering how you can safely invest $100k? Here are our top five picks.
What's in this guide?
How to build a $100k investment portfolio
It’s important to spread your investments to various areas for good diversification. If you choose to allocate to one type of investment you may increase your portfolio’s risk.
For instance, if you only invest in stocks, you’ll lower your diversification and increase your portfolio’s risk.
The investment types you choose should depend on your financial goals and timeline. If you’re an older investor nearing retirement, you may not want to choose a riskier, more volatile investment.
Likewise, if you need the money in a few years, you may want to play it safe with an investment type that has low risk, but low returns.
If you have a high risk tolerance and long investment timeline, a $100k portfolio might look like this:
| Investment type | Percentage |
|---|---|
| CDs/bonds | 10-25% |
| Stocks/ETFs/mutual funds | 50-75% |
| Real estate/alternative investments | 0-25% |
Before you invest $100k
Make the most of your $100k investment by doing these things first:
- Pay off high-interest debt. Otherwise, your debts will always grow faster than your investment returns.
- Stock your emergency fund. Make sure you have a fully-stocked emergency fund with three to six months of expenses. Keep it in a high-yield savings account where you can tap into it when needed.
- Maxing out retirement contributions. The maximum contribution limits in 2020 are $19,500 for a 401k and $6,000 for a Roth IRA, although you must meet certain income limits to qualify for an IRA.
Ask an expert: How should I invest my $100,000?
Dennis Shirshikov
Financial Analyst, Fit Small Business
Investors with over $100,000 in savings should devote only 50% of their portfolio to low-risk investments. At this stage, using a financial advisor is critical because the exact mix of investments should tailor to specific goals.
Individuals planning on retiring soon need lower-risk investments they can use for ongoing cash flow, like bonds or stocks that pay a good dividend. On the other hand, younger investors have a higher risk tolerance and a longer investment horizon. Therefore, investing in instruments that can produce a higher return is far more appealing and a bitter fit for their goals.
Overall the strategy at $100,000 encompasses several different pieces of other approaches, but the most important thing is to tailor the investments to the investor’s profile and goals.
Invest in high-quality stocks
Take a portion of your $100k investment and purchase high-quality stocks from stable companies with higher profit margins and lower debt.
Pros
- High returns. Historically, stocks have the highest potential return of any investment method.
- Liquidity. People trade stocks daily, so you can easily convert to cash when you need it.
- Stability. High-quality stocks don’t usually experience the same dips and swings in price as other stocks do.
- Passive income. Many companies pay quarterly dividends to shareholders.
Cons
- Slower growth. Contrary to startups and mid-sized businesses, these stable companies aren’t likely to experience rapid growth in the future.
- Requires expertise. Choosing stock is difficult, so you’ll need to know how to read a stock chart and analyze its performance.
- Higher stock prices. You could pay hundreds or thousands of dollars for one share of high-quality stock.
Invest in mutual funds or exchange-traded funds (ETFs)
If you’re looking to diversify your portfolio, mutual funds and ETFs may be the way to go. Both are made up of baskets of securities, such as stocks, bonds and other commodities. But mutual funds are actively managed and ETFs are passive.
Pros
- Low costs. Many brokers offer commission-free ETFs and low-fee mutual funds.
- Values-based investing. ETFs and mutual funds allow you to invest in specific sectors like technology and in certain ideas, such as sustainability.
- Diversification. These investment types are made up of hundreds of securities, so you won’t feel a sting if one security tanks.
- Liquid investments. You can readily convert mutual funds and ETFs to cash when you need it.
Cons
- Varying levels of control. An investment manager controls mutual funds, but you can trade them daily. You manage your own ETFs, but you can’t trade them daily.
- Capital gains. ETFs are more tax efficient than mutual funds, but you’ll pay capital gains taxes on both when you realize profit.
- Can have pricey fees. Although there are several low-cost options out there, beware brokers with hefty trading and management fees.
Invest with a financial advisor
If you’re looking for personalized advice on how to invest $100k, it may be time to hire a financial advisor.
Pros
- Working with an unbiased professional. Money is emotional, so a financial advisor can keep you from making costly mistakes with your investments.
- Industry expert. Financial advisors typically have years of experience managing large sums of money and dealing with complicated investment and tax situations.
Cons
- Hefty fees. You’ll typically pay a set percent based on the total amount of assets under management. So, if you have $100,000 in assets and your advisor charges 2%, you’ll pay $2,000.
- Requires thorough vetting. You’ll want to research and interview several financial advisors before you hire someone.
Invest in real estate
There are several ways to invest in real estate and $100k is enough to fund any method.
Pros
- Multiple ways to invest. With $100k, you can invest through a real estate investment trust (REIT), crowdfunding platforms or through investment property.
- REITs are safer. REITs are made up of several different properties and are more diversified and less risky than traditional real estate investments.
- Passive income. Regardless of which real estate investment you choose, most offer monthly or quarterly payments.
Cons
- Accreditation may be required. You may need to be accredited to invest with certain crowdfunding platforms, even if you can pay the minimum investment.
- Direct investments carry risk. You put all your eggs in one basket with direct investments.
- Big time commitment. If you purchase a property, you’ll have landlord responsibilities unless you outsource it to someone else.
Invest in peer-to-peer lending
Lend your money to other individuals in need through peer-to-peer lending.
Pros
- Passive income. Lenders receive monthly payments as borrowers chip away at the loan’s principal and interest.
- Higher returns. Peer-to-peer lending offers a 6% return on average.
- Variety. Fund many different types of loans, including personal, auto, business, medical and student loans.
Cons
- Higher risk. With higher returns comes higher risk, but you can lower your risk by investing in multiple different loans.
- Can’t back out. Once you fund a loan, you’re committed. You can’t hit the “undo” button and cut your losses.
- Pay taxes on interest. You’ll pay taxes on any interest you accrue, same as you would any other after-tax investment account.
Bottom line
Make sure you invest your $100k according to your goals and needs. You may choose to build your own portfolio using stocks, mutual funds and ETFs or try something new like real estate or peer-to-peer lending.
Whichever you choose, explore top investment accounts until you find the right institutions for you.
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